Rally week sustainable?

Rally week sustainable?

November 06, 2023

First of all, thank you to all the well wishes I’ve received for my Clemson Tigers upsetting Notre Dame this past Saturday.  I particularly liked the market analogy Coach Dabo expressed immediately after the win: “I know we’re down and everybody’s throwing dirt on us, but if Clemson’s a stock, you better buy all you freaking can buy, right now!

Similar to Clemson’s bounce back, last week saw impressive rallies in stocks, bonds and REITs, seemingly triggered by oversold conditions and two events: 1.) a refunding announcement by the US Treasury expressing the decision to moderate sales of longer-dated debt and, 2.) Federal Reserve Chair Jerome Powell’s press conference, viewed as signaling an end to the FOMC's aggressive rate hiking cycle.  But that’s a “why” conversation.  Let’s stay focused on the “what”.

Now comes the tricky part.  As seasoned market participants know, the sharpest rallies occur in bear markets, and Bonds have been in the worst bear market since the American Revolution.  For Stocks, 2023’s first half index performance, which stalled out before recovering 2022’s losses, was one of the most narrow in memory, dependent on a handful of mega-cap stocks.

So, let’s visually assess where we stand.

Chart 1a painful, persistent rise in Treasury yields (bond prices down) since the summer of 2020.

SOURCE: TC2000

Chart 2 – Friday’s intraday break, but not a close, below the trend channel for 10-year Treasury yields:

SOURCE: TC2000

Chart 3 – The cap-weighted S&P 500 stock index (SPX) broke through the bottom of its trend channel in late October and has now rallied to a difficult level, completing its best week of 2023.  Volume was solid last week, but how much was short-covering versus new buying?

Source: TC2000

Chart 4 – The SPX retakes its upward-sloping 150-day moving average and its downard-sloping 50-day counterpart.

SOURCE: TC2000

Chart 5 – Lastly,  we see the price action of 11/2 and 11/3 have created gaps for the index to cover in the future, less than 3% below the current level on 11/6.  The prior five gaps from June forward have all been covered, with several more between SPX levels of 4082 and 3979.

SOURCE: TC2000

Perhaps this is the start of another “Santa Claus Rally” and, should rates and the US$ Dollar continue to give ground, we’ll embrace it.

For now, I remain skeptical, maintaining a healthy allocation to 5%-yielding money market funds and a growing appreciation of our allowance to Precious Metals.

 

As always, please touch base should you want to talk more.  Here is our scheduling link:  www.JoyceWealthAdvisory.com/schedule

 


Disclosures:

This material is provided as a courtesy and for educational purposes only.  The future performance of an investment or strategy cannot be deduced from past performance.

Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.